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Commuter Choice / Tax Benefits
What is Commuter Choice?
Commuter Choice is a common term used to describe a provision of the IRS tax code that pertains to tax benefits for employers and their employees who use vanpools or public transit to commute to and from work. It allows up to $230 per month to be used for commuting, tax free.
How does it work?
The employee can pay for the cost of commuting (such as vanpooling) through pre-tax payroll deduction, the employer can pick up the expense, or both the employee and employer can share in the expense. Under all three scenarios, both the employee and employer can gain significant tax advantages.
In the examples below, either the employer provides $230 per month ($2,760 annually) in tax free transit benefits to the employee, or the employee elects to contribute the same amount from his or her regular compensation on a pre-tax basis, as noted.
Value of Transit Benefit to Employee:
| If Employer Pays | If Employee Pays | ||
|---|---|---|---|
| Private, Federal or Non-Profit | Without Commuter Choice | With Commuter Choice | |
| Base Amount - 2009 | 2,760 | 2,760 | 2,760 |
| Federal Income Tax | 690 | 690 | 0 |
| FICA Tax * (7.65%) | 211 | 211 | 0 |
| State Income Tax (6%) ** | 166 | 166 | 166 |
| True Transit Benefit Value |
3,827 | ||
| True Transit Benefit Cost to Employee | 3,827 | 2,926 | |
| Transit Benefit Savings to Employee | 901 | ||
* Results for Civil Service employees will be slightly different.
** Some states also allow this benefit to be excluded from state income tax.
Value of Transit Benefit to Employer:
| If Employer Pays | If Employee Pays | ||
|---|---|---|---|
| Private* | Commuter Choice | ||
| Base Amount - 2009 | 2,760 | 2,760 | |
| Fed/State Tax Deduction Savings * (assume combined 40% rate) |
(1,104) | n/a | |
| Employer FICA Saved ** (7.65%) | (211) | (211) | |
| Net Transit Benefit Cost to Employer | 1,145 | 0 | |
| Employer Savings | 1,315 | 211 | |
* Federal, Non-Profit & Civil Service employers are not taxable.
** Results for Civil Service employers will be slightly different.
If both the employer and employee contribute, the results will be a blending of the above examples.
